By: Heather C Abbott, BBA, CPA,
It’s more than just investments, insurance, savings and wealth creation.
Retirement planning becomes more challenging as the length of our lifespan keeps increasing. When old age security was introduced, the average person was able to collect it for 8 months before they died. As our time on the planet is increasing, it has created new challenges for how we will pay for our living expenses in to our golden years.
There are those who fell well prepared, but far too many who do not.
Ideally, you begin looking gat retirement planning early in life. This includes having a will, getting insurance coverage, making a plan for being out of debt before you retire, and taking advantage of any offers of matching contributions to a retirement fund.
Getting a will can be as simple as creating a legal holograph will, which is a handwritten document with only a few rules that vary by where you live. It isn’t a great option, but will prevent you from dying without a will while you are getting a good one done with a lawyer. I emphasize the importance of this all the time. I have had to deal with being an executor before, and I pity anyone having to deal with the loss of a loved one AND the government rules for the estate. Having a will is just common courtesy to those left behind.
It is never too early to get insurance coverage, but it can easily be too late. I have had clients in their 20s who were already uninsurable due to unexpected health issues. Having a good term policy to cover you in case of an unexpected early death and a more permanent option to cover final expenses is a good start. You should also speak with a knowledgeable insurance agent about long-term care insurance, and critical illness coverage that may become important in later years. Long-term care insurance is designed to cover costs of living should you become unable to care for yourself. Critical illness coverage generally provides a lump sum if you are diagnosed with specified illnesses. Most policies I have seen cover cancer, heart attack, stroke, and about 20 other illnesses. On my policy, I added “return of premium” riders. These are additions to the policy that result in me getting my premium paid back if I do not make a claim on the policy. One is for “at death”, one if for “at expiry”. “At death” is if I die before the policy expires, my estate gets the premiums back, the other is for if I live past the expiry date of the policy (age 75) I will get my premiums back.
The third point I mentioned above was to say yes, whenever possible, to an employer (or someone else) matching your contributions to your retirement fund. You are likely aware that a good return on your investment in a year can be 5-10 %. If someone is matching your contribution, that is a 100% return on your money. You have doubled what you have. Do not pass that up unless you absolutely do not have the cash flow to make the contribution.
When receiving contributions from others, you should be aware of the term “vesting”. Vesting refers to the amount contributed by others, becoming yours legally. Just because the government or an employer puts money in it may not remain yours if you withdraw your money early. There can be a period of time before the money they contribute “vests” and will become yours. Simply ask, or read the details on the agreement and look for the phrase “contribution vests after…” and it will tell you how long it takes before the money is legally yours, even if you make an early withdrawal.
A key step to build a solid foundation for your money, both now and into retirement, is to have clarity with your numbers. Unfortunately, this is not commonly taught in schools. Even accountants and financial advisors are not generally taught an effective method to do this. It is a crucial step in not only feeling confident and empowered with your money, but also in planning.
To get started, look at where your money is going now and where you want it to go in the future. Your bills may look completely different in retirement based on the lifestyle changes you want to implement. Getting clear on what you want is a critical starting point. Creating a plan to achieve it will bring both relief and hope.
Once you get that plan made you will be ahead of most of the population. Defining targets and goals are very important to success. If I hand you a ball and simply say “hit the target”, you will look at me quizzically because I did not tell you what the target is, so how are you supposed to hit it? It is the same with life, if you simply get up every day and go through a routine without setting any goals, it is highly unlikely you will change your life. Take the time to imagine what you want and challenge yourself with the question, “How did I achieve that?” Your mind will take a completely different approach to solving this question than it would trying to answer the question of “How can I do this?” It is a small difference in the wording that can produce huge results.
One of the big issues I have seen when people start looking at what they will do in retirement is overwhelm and panic that they begin to feel when they don’t have a plan or a large amount of savings and investments. Starting early is a great way to avoid this, but I do have one other idea.
When most people think of planning for retirement, their mind goes immediately to investments and money saved. Somewhere through the years, it became a common belief that retirement necessitated you to stop working and generating income. I believe there is a better way to view it, which can remove a great deal of the stress for the average person. Work is something you generally want to get away from because you don’t enjoy it for some reason. That can be because the job is restrictive, unpleasant, tedious or just not fun.
What if you viewed retirement as a beginning instead of an ending? You can still end your job, but begin a new career doing what you enjoy.
During our lives, we all accumulate knowledge and experience. To us, it just seems what we know is common knowledge because it is easy for us. We assume no one would ever pay us to learn it. But, for every skill and experience we accumulate, there are other people without it who want that knowledge or skill, but have not acquired it.
If you can do what you enjoy and get paid for it, that can be a great addition to a retirement plan.
I propose that you view your retirement not just as money accumulated, but also look at how you can take your life skills and knowledge and get paid to share them with others. This could be as simple as if you love making quilts, learning how to sell them. If you are a gardener, you can generate extra income when you divide your plants and sell them. It could also be a stay at home mom who successfully raised her children and overcame obstacles, who creates a course, or paid membership to help new mothers to do the same. If you love to do something, and you are good at it, chances are there is an audience that will pay you to get that knowledge or product from you.
Perhaps starting your own business does not appeal to you and you just want to stick with the traditional method of accumulating investments and cash and hoping you have enough to last until you die. I respect that. Everyone has their own way of doing things. Becoming an entrepreneur to fund your retirement is simply an added option.
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